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How supporting Start-Ups help Commercial Real Estate Markets

Rapid Startup Growth in These 4 Cities Has Led to Big Changes in Commercial Real Estate

Rapid Startup Growth in These 4 Cities Has Led to Big Changes in Commercial Real Estate

According to PwC's "2018 Emerging Trends in Real Estate -- U.S. and Canada," Seattle is set to become the strongest real estate market in the country this year. Driven by a massive influx of young, highly educated new residents -- the city's population growth rate is twice the national average, and the metro area is expected to gain nearly 30,000 new residents annually through at least 2022 -- Seattle appears ready to stake its claim alongside cities like San Francisco and New York City as a true blue-chip real estate market.

This years-long upward trend started to take shape in the wake of the Emerald City's startup revolution -- for years, Seattle was rivaled only by Silicon Valley when it came to tech-oriented startup activity -- underlining the strong correlation between startup activity and commercial real estate (CRE) growth.

Unfortunately -- for entrepreneurs and CRE investors alike -- the Great Recession took a heavy toll on the startup world. According to the 2017 Kauffman Index of Startup Activity, 2013 had the lowest volume of startup activity in more than two decades, bottoming out a precipitous post-2008 drop that saw nationwide entrepreneurship not only slow down, but actually start to contract.

Encouragingly, startup activity has rebounded strongly in the half-decade since its 2013 low, and Kauffman's Startup Activity Index is now the highest it has been since the mid-1990s. In addition to the New Yorks and Seattles, cities like Austin, Las Vegas, Los Angeles, Miami and San Diego have enjoyed robust growth in their startup sectors, leading to parallel -- and, arguably, consequent -- expansions of their CRE markets.

While it might be too late to "buy low" in these now top-tier markets, there are a number of smaller markets around the country with immense potential. Using Kauffman's index as a framework, we've referenced Reonomy's proprietary data sets to investigate the correlation between a city's startup activity and the CRE properties within that market. The result? A list of four cities whose rapidly growing startup ecosystems are increasing the value of local CRE -- meaning smart investors would be wise to keep their eyes on them in the coming months.